Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and therefore may involve risks, uncertainties and other factors which may cause the Company's actual results to be materially different from the results expressed or implied by the Company's forward-looking statements. These statements generally appear with words such as "will," "anticipate," "target," "believe," "estimate," "forecast," "enhance," "may," "intend," "plan," "goal," "project," "outlook," "expect" or the negative of such terms or other words of similar meaning. Forward-looking statements are not statements of historical fact and may include those that discuss, among others, our strategies, goals, plans, outlook, forecasts, expectations, intentions or other non-historical matters; future operations, financial condition, results of operations, or business developments; and the assumptions that underlie these matters. Although management believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to: the credit exposure of certain loan products and other components of our business that could be impacted by the changing economic and business conditions; changes in monetary, fiscal or tax policy to address changing economic conditions including interest rate policies of the Federal Reserve Board, any of which could cause us to incur additional loan losses and adversely affect our results of operations in the future; economic conditions (both generally and in the markets where the Company operates) including unemployment levels, energy prices, increased energy costs in California, inflation, supply chain issues, a decline in housing prices or collateral values, trade policies and tensions (including as a result of tariffs and other trade disruptions), geopolitical instability, market volatility associated with the political and economic environment and uncertainty surrounding potential legal, regulatory, and policy changes by the current U.S. presidential administration and the risk of a recession or slowed economic growth in the United States economy; the continuing impact of the changing economic conditions on our employees and customers, including consumer income, creditworthiness, confidence, spending and savings; the credit quality of borrowers; the success of our efforts to mitigate the impact of the changing economic conditions; competition from other providers of financial services offered by the Company and our response to competitive pressures; changes in government regulation and legislation; the impacts of any failure by the U.S. government to increase the debt ceiling or any federal government shutdown; changes in interest rates and interest rate fluctuations; volatility in the capital markets; the amount and rate of deposit growth and changes in deposit costs; material unforeseen changes in the financial stability and liquidity of the Company's credit customers; risks associated with concentrations in real estate related loans; our ability to maintain adequate capital or liquidity levels or to comply with revised capital or liquidity requirements; changes in accounting standards and interpretations; changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; the soundness of other financial institutions, including disruptions, instability and failures in the banking industry; physical or transition risks related to climate change; cybersecurity risks and heightened legislative and regulatory focus on cybersecurity and data privacy; risks that lawsuits, legal proceedings, information-gathering requests, investigations, and proceedings by governmental and self-regulatory agencies result in significant civil or criminal penalties, including monetary penalties, damages, adverse judgments, settlements, fines, injunctions, restrictions on the way the Company conducts its business, or reputational harm; and other risks as may be detailed from time to time in the Company's filings with the Securities and Exchange Commission including the risk factors set forth under "Part I-Item 1A. Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2025, all of which are difficult to predict and which may be beyond the control of the Company. Many of the foregoing risks and uncertainties are, and will be, exacerbated by the worsening of the global business and economic environment. The Company undertakes no obligation to revise forward-looking statements to reflect events or changes after the date of this discussion or to reflect the occurrence of unanticipated events.

Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, whether as a result of new information, future developments or otherwise, except as may be required by law.

The following discussion explains the significant factors affecting the Company's operations and financial position for the periods presented. The discussion should be read in conjunction with the Company's financial statements and the notes related thereto which appear or that are referenced to elsewhere in this report, and with the audited consolidated financial statements and accompanying notes included in the Company's 2025 Annual Report on Form 10-K. Average balances, including balances used in calculating certain financial ratios, are generally comprised of average daily balances.

The discussion and analysis of the Company's financial condition and results of operations is based upon the Company's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the Company's financial statements. Actual results may differ from these estimates under different assumptions or conditions. This discussion and analysis includes management's insight of the Company's financial condition and results of operations of Oak Valley Bancorp and its subsidiary. Unless otherwise stated, the "Company" refers to the consolidated entity, Oak Valley Bancorp, while the "Bank" refers to Oak Valley Community Bank.

Introduction

Oak Valley Bancorp is the bank holding company for its sole subsidiary, Oak Valley Community Bank, a community bank in the general commercial banking business. Our primary market encompasses the California Central Valley around Sacramento, Stockton, Modesto, and the Eastern Sierras. Eastern Sierra Community Bank operates as a division of and is a part of Oak Valley Community Bank, for the branches located in Mammoth Lakes, Bridgeport and Bishop. As such, unless otherwise noted, all references are about Oak Valley Bancorp.

Oak Valley Community Bank (the "Bank") is an insured bank under the Federal Deposit Insurance Act and is a member of the Federal Reserve. Since its formation, the Bank has provided basic banking services to individuals and business enterprises in Oakdale, California and the surrounding areas. The focus of the Bank is to offer a range of commercial banking services designed for both individuals and small to medium-sized businesses in the Central Valley and the Eastern Sierras.

The Bank offers a complement of business checking and savings accounts for its business customers. The Bank also offers commercial and real estate loans, as well as lines of credit. Real estate loans are generally of a short-term nature for both residential and commercial purposes. Longer-term real estate loans are generally made with adjustable interest rates and contain normal provisions for acceleration. In addition, the Bank offers traditional residential mortgages through a third party.

The Bank also offers other services for both individuals and businesses including online banking, remote deposit capture, merchant services, night depository, extended hours, traveler's checks, wire transfer of funds, note collection, and automated teller machines in a national network. The Bank does not currently offer international banking or trust services although the Bank may make such services available to the Bank's customers through financial institutions with which the Bank has correspondent banking relationships. The Bank does not offer stock transfer services, nor does it directly issue credit cards.

Critical Accounting Estimates

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation and uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. We consider an accounting estimate to be critical to our financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain, (ii) management could have applied different assumptions during the reported period, and (iii) changes in the accounting estimate are reasonably likely to occur in the future and could have a material impact on our financial statements. Management has determined the following accounting estimates and related policies to be critical:

Allowance for Credit Losses- Credit risk is inherent in the business of lending and making commercial loans. Accounting for our allowance for credit losses involves significant judgment and assumptions by management and is based on historical data as well as reasonable and supportable forecasts of future events. At least on a quarterly basis, our management reviews the methodology and adequacy of allowance for credit losses and reports its assessment to the Board of Directors for its review and approval.

The allowance for credit losses is an estimate dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loans, qualitative factors, the valuation of problem loans and the general economic conditions in our market area. See Note 4 to the consolidated financial statements, and the "Provision for Credit Losses" and "Allowance for Credit Losses" sections of this discussion and analysis for more information on the establishment of the Allowance for Credit Losses and the implementation of CECL.

Overview of Results of Operations and Financial Condition

The purpose of this summary is to provide an overview of the items that management focuses on when evaluating the condition of the Company and its success in implementing its business and shareholder value strategies. The Company's business strategy is to operate the Bank as a well-capitalized, profitable and independent community-oriented bank. The Company's shareholder value strategy has three major objectives: (1) enhancing shareholder value; (2) making its retail banking franchise more valuable; and (3) efficiently utilizing its capital.

Management believes the following were important factors in the Company's performance during the three-month period ended March 31, 2026:

•

The Company recognized net income of $5,309,000 for the three-month period ended March 31, 2026, as compared to $5,297,000 for the same period in 2025. The net income increase was mainly due to higher net interest income corresponding to earning asset growth.

•

The Company recorded provisions for credit losses of $464,000 during the three-months ended March 31, 2026, as compared to $274,000 during the same period of 2025, as credit quality remained stable and the reserve amount was determined to be adequate.

•

Net interest income increased $1,017,000 for the three-month period ended March 31, 2026, compared to the same period in 2025. The net interest income increase was mainly due to an increase in earning asset balances, which was partially offset by an increase in interest expense on deposit accounts.

•

Non-interest income increased by $339,000 for the three-month period ended March 31, 2026, as compared to the same period in 2025. The increase was mainly due to a non-recurring special dividend of $181,000 received from the Federal Home Loan Bank.

•

Non-interest expense increased by $1,156,000 for the three-month period ended March 31, 2026, as compared to the same period in 2025. The increase was primarily due to staffing increases and overhead related to servicing the growing business portfolios.

•

Total assets decreased by $12,817,000, or 0.6%, total net loans increased by $3,107,000, or 0.3%, and investment securities increased by $11,525,000, or 2.1%, in each case from December 31, 2025 to March 31, 2026, while deposits decreased by $11,966,000, or 0.7%, for the same period. Consequently, cash and cash equivalent balances decreased by $30,576,000, or 13.2%.

Income Summary

For the three-month period ended March 31, 2026, the Company recorded net income of $5,309,000, representing an increase of $12,000, as compared to the same period in 2025. Return on average assets (annualized) was 1.07% for the three-months ended March 31, 2026, as compared to 1.13% for the same period in 2025. Annualized return on average common equity was 10.23% for the three-months ended March 31, 2026, as compared to 11.58% for the same period in 2025. Net income before provisions for income taxes increased by $10,000 for the three-month period ended March 31, 2026, from the same period in 2025. The income statement components of these variances are as follows:

Pre-Tax Income Variance Summary:

(In thousands)		Effect on Pre-Tax Income
		Increase (Decrease)
		Three Months Ended
		March 31, 2026
Change from 2025 to 2026 in:
Net interest income		$	1,017
Provision for credit losses			(190	)
Non-interest income			339
Non-interest expense			(1,156	)
Change in net income before income taxes		$	10

These variances will be explained in the discussion below.

Net Interest Income

Net interest income is the largest source of the Company's operating income. For the three-month period ended March 31, 2026, net interest income was $18,824,000, which represents an increase of $1,017,000, from the comparable period in 2025. The increase was due to growth of earning assets and upward repricing of our loan yield in spite of short-term rate cuts by the FOMC during 2025.

The FOMC rate cuts during 2024 and 2025 totaled 150 basis points, which prompted the Company to reduce the interest rates on certain deposit accounts towards the end of 2024 and into 2025. The resulting average cost of funds was 0.78% for the three-months ended March 31, 2026, as compared to 0.79% in the same period of 2025.

The net interest margin (net interest income as a percentage of average interest earning assets) was 4.12% for the three-month period ended March 31, 2026, as compared to 4.09% for the same period in 2025. The net interest margin increased compared to the prior year due to the rising loan yields, earning asset growth and downward trend of the deposit interest rates. The earning asset yield increased by 1 basis point for the three-month period ended March 31, 2026, as compared to the same period of 2025.

The following table shows the relative impact of changes in average balances of interest earning assets and interest-bearing liabilities, and interest rates earned and paid by the Company on those assets and liabilities for the three-month periods ended March 31, 2026 and 2025:

Net Interest Analysis

		Three months ended												Three months ended
		March 31, 2026												March 31, 2025
(in thousands)		Average Balance				Interest Income / Expense				Avg Rate/ Yield (5)				Average Balance				Interest Income / Expense				Avg Rate/ Yield (5)
Assets:
Earning assets:
Gross loans (1) (2)		$	1,144,224			$	15,089				5.35	%		$	1,090,609			$	14,007				5.21	%
Investment securities (2)			571,310				5,956				4.23	%			562,102				5,853				4.22	%
Federal funds sold			28,780				258				3.64	%			31,915				350				4.45	%
Interest-earning deposits			161,560				1,461				3.66	%			129,712				1,403				4.39	%
Total interest-earning assets			1,905,874				22,764				4.84	%			1,814,338				21,613				4.83	%
Total noninterest earning assets			100,301												89,247
Total assets			2,006,175												1,903,585
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-earning DDA			570,862				761				0.54	%			503,111				735				0.59	%
Money market deposits			393,571				1,612				1.66	%			391,111				1,705				1.77	%
Savings deposits			117,888				28				0.10	%			121,377				31				0.10	%
Time deposits $250,000 and under			73,620				621				3.42	%			56,361				500				3.60	%
Time deposits over $250,000			44,038				379				3.49	%			37,844				338				3.62	%
Total interest-bearing liabilities			1,199,979				3,401				1.15	%			1,109,804				3,309				1.21	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits			572,451												583,326
Other liabilities			23,183												24,863
Total noninterest-bearing liabilities			595,634												608,189
Shareholders' equity			210,562												185,592
Total liabilities and shareholders' equity		$	2,006,175											$	1,903,585
Net interest income						$	19,363											$	18,304
Net interest spread (3)											3.69	%											3.62	%
Net interest margin (4)											4.12	%											4.09	%

______________________________________

(1) Loan fees have been included in the calculation of interest income.

(2) Yields and interest income on tax-exempt municipal securities and loans have been adjusted to their fully-taxable equivalents, based on a federal marginal tax rate of 21.0%. Non-GAAP tax benefit adjustments of $18 thousand and $521 thousand have been added to GAAP interest income on gross loans and investment securities, respectively, for the three-months ended March 31, 2026, as compared to $18 thousand and $478 thousand, respectively, in the comparable period of 2025. These non-GAAP adjustments are used by management to assess the Company's performance and provide additional information and transparency to investors with respect to the Company's gross loans and investment securities. Non-GAAP performance measures do not have a standardized meaning and such measures may not be comparable to similar measures presented by other companies. Non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

(3) Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

(4) Represents net interest income as a percentage of average interest-earning assets.

(5) Annual interest rates are computed by dividing the interest income/expense by the number of days in the period multiplied by 365.

Shown in the following table is the relative impact on net interest income of changes in the average outstanding balances (volume) of earning assets and interest-bearing liabilities and the rates earned and paid by the Company on those assets and liabilities for the three-month periods ended March 31, 2026 and 2025. Changes in interest income and expense that are not attributable specifically to either rate or volume are allocated to the rate column below.

Rate / Volume Variance Analysis

		For the Three-Months Ended March 31, 2026
		Compared to March 31, 2025
		Increase (Decrease)
		in interest income and expense
(in thousands)		due to changes in:
		Volume				Rate				Total
Interest income:
Gross loans (1) (2)		$	689			$	393			$	1,082
Investment securities (2)			96				7				103
Federal funds sold			(34	)			(58	)			(92	)
Interest-earning deposits			345				(287	)			58
Total interest income		$	1,096			$	55			$	1,151
Interest expense:
Interest-earning DDA		$	99			$	(73	)		$	26
Money market deposits			11				(104	)			(93	)
Savings deposits			(1	)			(2	)			(3	)
Time deposits $250,000 and under			153				(32	)			121
Time deposits over $250,000			55				(14	)			41
Total interest expense		$	317			$	(225	)		$	92
Change in net interest income		$	779			$	280			$	1,059

__________________________________

(1) Loan fees have been included in the calculation of interest income.

(2) Interest income on municipal securities and loans has been adjusted to their fully-taxable equivalents, based on a federal marginal tax rate of 21.0%.

The table above reflects an increase of $779,000 in net interest income due to changes in volume combined with the overall change in mix of balances during the first quarter of 2026, as compared to the same period of 2025. Changes in earning asset yields and rates on interest-bearing liabilities resulted in an increase of $280,000 to net interest income, over the same period. This increase was mainly due to higher loan yields as our loan portfolio continues to reprice upward.

Provision for Credit Losses

The Company makes provisions for credit losses when required to bring the total allowance for credit losses to a level deemed appropriate for the level of risk in the loan portfolio. At least quarterly, management conducts an assessment of the overall quality of the loan portfolio and general economic trends in the local market. The determination of the appropriate level for the allowance is based on that review, considering such factors as historical experience, the volume and type of lending conducted, the amount of and identified potential loss associated with specific non-performing loans, regulatory policies, general economic conditions, and other factors, including reasonable and supportable forecasts, related to the collectability of loans in the portfolio.

During the three-month period ended March 31, 2026, the Company recorded a provision for credit losses of $464,000, consisting of a provision for loan losses of $539,000 and a reversal of provisions for off balance sheet items of $75,000. During the three-month period ended March 31, 2025, the Company recorded a provision for credit losses of $274,000, related to the reserve for off balance sheet items. There was one non-accrual loan that was individually evaluated resulting in a specific reserve as of March 31, 2026 and December 31, 2025, a non-owner occupied commercial real estate loan with a balance of $4,574,000 and $4,587,000, respectively.

Credit quality remained stable and our ACL amount was adequate as determined by the output of our CECL internal credit risk model. Management will continue to closely monitor the credit risks to our loan portfolio and may need to make qualitative adjustments depending on factors that may impact the economy and the financial condition of our borrowers.

Non-Interest Income

Non-interest income represents service charges on deposit accounts and other non-interest related charges and fees, including fees from mortgage commissions and investment service fee income. For the three-month period ended March 31, 2026, non-interest income was $1,952,000, representing an increase of $339,000, or 21.0%, compared to the same period in 2025.

The following table shows the major components of non-interest income:

(in thousands)		For the Three Months Ended March 31,
		2026								2025								Year-Over-Year
		Amount				%				Amount				%				$ Change				% Change
Service charges on deposits		$	440				22.5	%		$	446				27.6	%		$	(6	)			(1.3	%)
Debit card transaction fee income			408				20.9	%			396				24.6	%			12				3.0	%
Earnings on cash surrender value of life insurance			304				15.6	%			288				17.9	%			16				5.6	%
Mortgage commissions			11				0.6	%			9				0.6	%			2				22.2	%
Loss on calls of available-for-sale securities			(5	)			(0.3	%)			0				0.0	%			(5	)			0.0	%
Other income			794				40.7	%			474				29.3	%			320				67.5	%
Total non-interest income		$	1,952				100.0	%		$	1,613				100.0	%		$	339				21.0	%
YTD average assets		$	2,006,175								1,903,585
Noninterest income as a % of average assets							0.1	%							0.1	%

Service charges on deposits decreased by $6,000 for the three-months ended March 31, 2026, compared to the same period in 2025. The decrease was mainly due to a reduction in overdraft fee income despite the growth in demand deposit accounts.

Debit card transaction fee income increased by $12,000 for the three-months ended March 31, 2026, compared to the same period in 2025, due to the growth in the number of demand deposit accounts and the continuing industry shift to electronic payment methods.

Earnings on cash surrender value of life insurance increased by $16,000 for the three-months ended March 31, 2026, compared to the same period in 2025, corresponding to higher yields earned in 2026.

Mortgage commissions increased by $2,000 for the three-months ended March 31, 2026, compared to the same period in 2025. Overall, the demand for home purchases and refinancing has decreased in 2025 and 2026, mainly due to rising housing prices and interest rates.

A loss on calls of available-for-sale securities of $5,000 was recorded during the three-months ended March 31, 2026, compared to no gain or loss on calls of available-for-sale securities for the same period in 2025. There were no sales during the first three months of 2026 and 2025.

Other income increased by $320,000 for the three-months ended March 31, 2026, as compared to the same period of 2025, mainly due to a non-recurring special dividend of $181,000 paid by the Federal Home Loan Bank during the first quarter of 2026.

Non-Interest Expense

Non-interest expense represents salaries and benefits, occupancy expenses, professional expenses, outside services, and other miscellaneous expenses necessary to conduct business.

The following table shows the major components of non-interest expenses:

(in thousands)		For the Three Months Ended March 31,
		2026								2025								Year-Over-Year
		Amount				%				Amount				%				$ Change				% Change
Salaries and employee benefits		$	8,562				63.4	%		$	7,750				62.8	%		$	812				10.5	%
Occupancy expenses			1,394				10.3	%			1,127				9.1	%			267				23.7	%
Data processing fees			837				6.2	%			742				6.0	%			95				12.8	%
Regulatory assessments			295				2.2	%			285				2.3	%			10				3.5	%
Other operating expenses			2,418				17.9	%			2,446				19.8	%			(28	)			(1.1	%)
Total non-interest expense		$	13,506				100.0	%		$	12,350				100.0	%		$	1,156				9.4	%
YTD average assets		$	2,006,175							$	1,903,585
Noninterest expenses as a % of average assets							0.7	%							0.6	%

Non-interest expenses increased by $1,156,000, or 9.4%, for the three-months ended March 31, 2026, as compared to the same period of 2025. Salaries and employee benefits increased by $812,000 for the three-months ended March 31, 2026, as compared to the same period of 2025, mainly due to additional staffing expense required to support the continued growth of our business portfolios.

Occupancy expenses increased by $267,000 for the three-months ended March 31, 2026, as compared to the same period of 2025, due to increases in rent and maintenance costs related to branch facilities. Our new Lodi branch was opened in October 2025, and contributed to the increase in overhead expense.

Data processing fees increased by $95,000 for the three-months ended March 31, 2026, as compared to the same period of 2025, due to servicing costs on the growing number of loan and deposit accounts.

Federal Deposit Insurance Corporation ("FDIC") and California Department of Financial Protection and Innovation ("DFPI") regulatory assessments increased by $10,000 for the three-months ended March 31, 2026, as compared to the same period in 2025, which was primarily related to deposit growth. The FDIC base rate remained at 0.05%, on an annual basis, for both periods, which is the lowest possible assessment rate for comparable banks. The Company's risk profile and the related assessment rate remains at a relatively low level due to our strong credit quality, earnings and risk-based capital ratios. Management recognizes that assessments could increase further depending on deposit growth throughout the remainder of 2026, as the FDIC assessment rates are applied to average quarterly total liabilities as the primary basis, and based on FDIC's discretion to increase the base assessment rate as needed to replenish the Deposit Insurance Fund. Moreover, the FDIC retains the authority and discretion to increase base assessment rates for banking entities in the future, as circumstances warrant.

Other expense decreased by $28,000 for the three-months ended March 31, 2026, as compared to the same period in 2025, due to normal fluctuations in various general operating expense categories.

Management anticipates that non-interest expense will continue to increase as the Company continues to grow. However, management remains committed to cost-control and intends to keep these increases to a minimum relative to growth.

Income Taxes

The Company recorded provisions for income taxes of $1,497,000 for the three-months ended March 31, 2026, representing a decrease of $2,000, compared to the provisions recorded in the comparable period of 2025. The effective income tax rate on income from continuing operations was 22.0% for the three-months ended March 31, 2026, compared to 22.1% for the comparable period of 2025. These provisions reflect accruals for taxes at the applicable rates for federal income tax and California franchise tax based upon reported pre-tax income, and adjusted for the effects of all permanent differences between income for tax and financial reporting purposes (such as earnings on qualified municipal securities, bank owned life insurance and certain tax-exempt loans). The disparity between the effective tax rates for the year-to-date period of 2026 as compared to 2025 is primarily due to tax credits from low-income housing projects as well as tax-free income on municipal securities and loans that comprised a larger proportion of pre-tax income in 2026 as compared to 2025.

Asset Quality

Non-performing assets consist of loans on non-accrual status, including loans restructured on non-accrual status, where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal, loans 90 days or more past due and still accruing interest and other real estate owned ("OREO").

Loans are generally placed on non-accrual status when they become 90 days past due, unless management believes the loan is adequately collateralized and in the process of collection. The past due loans may or may not be adequately collateralized, but collection efforts are continuously pursued. Loans may be restructured by management when a borrower has experienced some changes in financial status, causing an inability to meet the original repayment terms, and where management believes the borrower will eventually overcome those circumstances and repay the loan in full. OREO consists of properties acquired by foreclosure or similar means which management intends to offer for sale.

Non-accrual loans totaled $4,574,000 as of March 31, 2026 and $4,587,000 as of December 31, 2025, consisting of one non-owner occupied commercial real estate loan. At March 31, 2026 and December 31, 2025, there were no loan modifications pursuant to ASU 2022-02, and therefore there were no payment delinquencies on modified loans during the three-months ended March 31, 2026.

As of March 31, 2026 and December 31, 2025, there were no OREO properties. There were no sales, acquisitions or fair value adjustments of OREO properties during the three-months ended March 31, 2026 and 2025.

The following table presents information about the Bank's non-performing assets, including asset quality ratios as of March 31, 2026 and December 31, 2025:

Non-Performing Assets

(in thousands)		March 31,				December 31,
		2026				2025
Loans in non-accrual status		$	4,574			$	4,587
Loans past due 90 days or more and accruing			0				0
Total non-performing loans			4,574				4,587
Other real estate owned			0				0
Total non-performing assets		$	4,574			$	4,587
Allowance for credit losses		$	12,910			$	12,381
Asset quality ratios:
Non-performing assets to total assets			0.23	%			0.23	%
Non-performing loans to total loans			0.40	%			0.40	%
Allowance for credit losses to total loans			1.13	%			1.08	%
Allowance for credit losses to total non-performing loans			282.25	%			269.91	%

Non-performing assets were $4,574,000 and $4,587,000 as of March 31, 2026 and December 31, 2025, respectively, consisting of the one non-accrual loan discussed above.

Allowance for Credit Losses

Due to credit risk inherent in the lending business, the Company routinely sets aside allowances through charges to earnings. Such charges are not only made for the outstanding loan portfolio, but also for off-balance sheet items, such as commitments to extend credits or letters of credit. Charges for the outstanding loan portfolio have been credited to the allowance for credit losses, whereas charges for off-balance sheet items have been credited to the reserve for off-balance sheet items, which is presented as a component of other liabilities. The Company recorded a provision for credit losses of $539,000 during the three-months ended March 31, 2026, as compared to no provisions during the same period of 2025. The provision of $539,000 recorded in the first quarter of 2026 was related to the specific allowance of the one non-accrual loan that is individually evaluated, in addition to qualitative risk factors within our credit risk model. The Company recorded a reversal of provisions for off balance sheet items of $75,000 during the three-months ended March 31, 2026 due to a decrease in unfunded loan commitments, as compared to a provision of $274,000 during the same period of 2025.

The allowance for credit losses increased by $529,000 to $12,910,000 as of March 31, 2026, as compared to $12,381,000 as of December 31, 2025, due to the provision for credit losses of $539,000 during the first three months of 2026. The allowance for credit losses as a percentage of total loans increased to 1.13% as of March 31, 2026 as compared to 1.08% as of December 31, 2025.

The Company will continue to monitor the adequacy of the allowance for credit losses and make additions to the allowance in accordance with the analysis referred to above. Because of uncertainties inherent in estimating the appropriate level of the allowance for credit losses, actual results may differ from management's estimate of credit losses and the related allowance.

The Company makes provisions for credit losses when required to bring the total allowance for credit losses to a level deemed appropriate for the level of risk in the loan portfolio. At least quarterly, management conducts an assessment of the overall quality of the loan portfolio and general economic trends in the local market. The determination of the appropriate level for the allowance is based on that review, considering such factors as historical experience, the volume and type of lending conducted, the amount of and identified potential loss associated with specific non-performing loans, regulatory policies, general economic conditions, and other factors related to the collectability of loans in the portfolio.

Although management believes the allowance as of March 31, 2026 was adequate to absorb expected credit losses from any known and inherent risks in the portfolio, no assurance can be given that the adverse effect of current and future economic conditions on the Company's service areas, or other variables, will not result in increased losses in the loan portfolio in the future.

Investment Activities

Investments are a key source of interest income. Management of the investment portfolio is set in accordance with strategies developed and overseen by the Company's Investment Committee. Investment balances, including cash equivalents and interest-bearing deposits in other financial institutions, are subject to change over time based on the Company's asset/liability funding needs and interest rate risk management objectives. The Company's liquidity levels take into consideration all available sources of credits and are maintained at levels management believes are appropriate to assure future flexibility in meeting anticipated funding needs.

Cash Equivalents

The Company holds federal funds sold, unpledged available-for-sale securities and salable government guaranteed loans to help meet liquidity requirements and provide temporary holdings until the funds can be otherwise deployed or invested. As of March 31, 2026, and December 31, 2025, the Company had $201,603,000 and $232,179,000, respectively, in cash and cash equivalents.

Investment Securities

Management of the investment securities portfolio focuses on providing an adequate level of liquidity and establishing an interest rate-sensitive position, while earning an adequate level of investment income without taking undue risk. Investment securities that the Company intends to hold until maturity are classified as held-to-maturity securities, and all other investment securities are classified as available-for-sale or equity securities. Currently, all of the investment securities are classified as available-for-sale except for one mutual fund classified as an equity security with a carrying value of $3,434,000 as of March 31, 2026. The carrying values of available-for-sale investment securities are adjusted for unrealized gains or losses as a valuation allowance and any gain or loss is reported on an after-tax basis as a component of other comprehensive income. The carrying values of equity securities are adjusted for unrealized gains or losses through noninterest income in the consolidated statement of income.

For available-for-sale debt securities in an unrealized loss position, management evaluates whether the decline in fair value is a reflection of credit deterioration or other factors. In performing this evaluation, management considers the extent which fair value has fallen below amortized cost, changes in ratings by rating agencies, and other information indicating a deterioration in repayment capacity of either the underlying issuer or the borrowers providing repayment capacity in a securitization. If management's evaluation indicates that a credit loss exists then a present value of the expected cash flows is calculated and compared to the amortized cost basis of the security in question and to the degree that the amortized cost basis exceeds the present value an allowance for credit loss ("ACL") is established, with the caveat that the maximum amount of the reserve on any individual security is the difference between the fair value and amortized cost balance of the security in question. Any unrealized loss that has not been recorded through an ACL is recognized in other comprehensive income.

The unrealized losses are due primarily to rising market yields and not due to credit deterioration. As such, no ACL on available-for-sale securities has been established as of March 31, 2026. The Company does not intend to sell the securities and it is not likely that the Company will be required to sell the securities before the earlier of the forecasted recovery or the maturity of the underlying investment security.

Low Income Housing Tax Credit Funds

During 2018 and 2022, we committed to invest $5,000,000 and $10,500,000, respectively, in low-income housing tax credit funds ("LIHTC") to promote our participation in CRA activities. During the three-months ended March 31, 2025, we committed an additional $5,000,000 that included a housing project in our local area that qualified for CRA credit. Unfunded commitments on the LIHTC funds were $4,394,000 and $4,598,000 as of March 31, 2026 and December 31, 2025, respectively. For LIHTC investments, we receive the return in the form of tax credits and tax deductions over a period of approximately 15 years.

Deposits

Total deposits as of March 31, 2026 were $1,780,996,000, a decrease of $11,966,000, or 0.7%, from the deposit total of $1,792,962,000 as of December 31, 2025. Average deposits increased by $79,300,000 to $1,772,430,000 for the three-month period ended March 31, 2026, as compared to the same period in 2025.

Deposits Outstanding

		March 31,				December 31,				Three Month Change
(in thousands)		2026				2025				$				%
Demand		$	1,140,283			$	1,180,953			$	(40,670	)			(3.4%	)
MMDA			401,815				383,819				17,996				4.7	%
Savings			117,877				115,121				2,756				2.4	%
Time < $250K			75,193				69,173				6,020				8.7	%
Time > $250K			45,828				43,896				1,932				4.4	%
		$	1,780,996			$	1,792,962			$	(11,966	)			(0.7%	)

Because the Company's client base is comprised primarily of commercial and industrial accounts, individual account balances are generally higher than those of consumer-oriented banks. Four clients carry deposit balances of more than 1% of total deposits, one of which had a deposit balance of more than 3% of total deposits as of March 31, 2026. Management believes that the Company's funding concentration risk is not significant and is mitigated by the ample sources of funds the Bank has access to.

Since the deposit growth strategy emphasizes core deposit growth, the Company has avoided relying on brokered deposits as a consistent source of funds. The Company had no brokered deposits as of March 31, 2026 and December 31, 2025.

Borrowings

Although deposits are the primary source of funds for lending and investment activities and for general business purposes, the Company may obtain advances from the Federal Home Loan Bank ("FHLB") as an alternative to retail deposit funds. As of March 31, 2026 and December 31, 2025, there were no outstanding FHLB advances or borrowings of any kind, as the Company continues to rely on deposit growth as its primary source of funding. See "Liquidity and Capital Resources" below for the details on the FHLB borrowings program.

Capital Ratios

The Company is regulated by the Federal Reserve Bank ("FRB") and is subject to the securities registration and public reporting regulations of the Securities and Exchange Commission. As a California state-chartered bank, the Company's banking subsidiary is subject to primary supervision, examination and regulation by the DFPI and the Federal Reserve Board. The Federal Reserve Board is the primary federal regulator of state-member banks. The Bank is also subject to regulation by the FDIC, which insures the Bank's deposits as permitted by law. Management continues to monitor the implementation of Pub. L. No. 119-21, or the One Big Beautiful Bill Act, to determine implications for the Company, but is not currently aware of any recommendations of regulatory authorities or otherwise which, if they were to be implemented, would have a material effect on the Company's or Bank's liquidity, capital resources, or operations.

The U.S. Basel III rules contain capital standards regarding the composition of capital, minimum capital ratios and counter-party credit risk capital requirements. The Basel III rules also include a definition of common equity Tier 1 capital and require that certain levels of such common equity Tier 1 capital be maintained. The rules also include a capital conservation buffer, which imposes a common equity requirement above the new minimum that can be depleted under stress and could result in restrictions on capital distributions and discretionary bonuses under certain circumstances, as well as a new standardized approach for calculating risk-weighted assets. Under the Basel III rules, we must maintain a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, a ratio of Tier 1 capital to risk-weighted assets of at least 6%, a ratio of total capital to risk-weighted assets of at least 8% and a minimum Tier 1 leverage ratio of 4.0%. In addition to the preceding requirements, all financial institutions subject to the Rules, including the Bank, are required to establish a "conservation buffer," consisting of common equity Tier 1 capital, which is at least 2.5% above each of the preceding common equity Tier 1 capital ratio, the Tier 1 risk-based ratio and the total risk-based ratio. An institution that does not meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases and discretionary bonuses to executive officers.

Failure to meet minimum capital requirements can trigger regulatory actions that could have a material adverse effect on the Company's financial statements and operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that rely on quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The U.S. Basel III minimum capital ratios do not apply to the Company because it has less than $3 billion in total assets and therefore qualifies as a small bank holding company. The minimum capital ratios apply only to the Bank.

The following tables present a comparison of our actual capital ratios to the minimum required ratios as of the dates indicated:

Capital Ratios for the Bank:
(in thousands)		Actual								For Capital				For Capital Adequacy Purposes With Capital
As of March 31, 2026		Amount				Ratio				Adequacy Purposes				Conservation Buffer				To Be Well Capitalized
Total Capital (to Risk Weighted Assets)		$	238,143				16.34	%			8.00	%			10.50	%			10.00	%
Tier 1 Capital (to Risk Weighted Assets)		$	224,624				15.42	%			6.00	%			8.50	%			8.00	%
Common Equity Tier 1 (to Risk Weighted Assets)		$	224,624				15.42	%			4.50	%			7.00	%			6.50	%
Tier 1 Leverage Capital (to Average Assets)		$	224,624				11.09	%			4.00	%			4.00	%			5.00	%

(in thousands)		Actual								For Capital				For Capital Adequacy Purposes With Capital
As of December 31, 2025		Amount				Ratio				Adequacy Purposes				Conservation Buffer				To Be Well Capitalized
Total Capital (to Risk Weighted Assets)		$	236,023				16.17	%			8.00	%			10.50	%			10.00	%
Tier 1 Capital (to Risk Weighted Assets)		$	222,958				15.27	%			6.00	%			8.50	%			8.00	%
Common Equity Tier 1 (to Risk Weighted Assets)		$	222,958				15.27	%			4.50	%			7.00	%			6.50	%
Tier 1 Leverage Capital (to Average Assets)		$	222,958				10.94	%			4.00	%			4.00	%			5.00	%

Proposed rules for U.S. implementation of capital requirements under Basel IV rules, commonly referred to as the "Basel III Endgame", were initially issued by the U.S. federal banking agencies on July 27, 2023, but such proposed rules were met with strong objections from the banking industry. As a result, on March 19, 2026, the Office of the Comptroller of the Currency, (the "OCC"), FDIC and the Federal Reserve rescinded the Basel III Endgame 2023 proposal and concurrently issued three revised notices of proposed rulemaking. The three proposals include (i) a revised Basel III Endgame proposal that would apply an expanded risk-based approach to Category I and Category II banking organizations, thus narrowing the mandatory scope from the 2023 proposal, with all other banking organizations permitted to opt in; (ii) a revised standardized approach proposal that would reduce risk weights for traditional lending activities for banking organizations not subject to the expanded risk-based approach; and (iii) a revised capital surcharge proposal for globally systemically important bank holding companies. The OCC, FDIC and the Federal Reserve estimate that the revised proposals would decrease aggregate common equity tier 1 capital requirements by approximately 4.8% for Category I and Category II banking organizations, in contrast to the significant capital increases that would have resulted under the Basel III Endgame 2023 proposal. Additionally, the revised proposal would eliminate the requirement to deduct mortgage servicing assets from common equity tier 1 capital, instead assigning a 250% risk weight, which is designed to promote mortgage origination and servicing by banking organizations. The Federal Reserve voted 6-to-1 to advance all three proposals and the FDIC board voted unanimously in favor of the revised Basel III Endgame and standardized approach proposals. The comment period for the revised proposals is scheduled to close on June 18, 2026.

Liquidity and Capital Resources

Material Cash Commitments

The following table summarizes short- and long-term material cash requirements as of March 31, 2026. Management expects to fund these obligations through cash generated from operations and other available sources of funds:

(in thousands)		Less than 1 year				More than 1 year				Total
LIHTC capital contributions payable		$	2,247			$	2,147			$	4,394
Operating lease obligations			1,630				6,621				8,251
Supplemental retirement plans			135				13,544				13,679
Time deposit maturities			118,302				2,720				121,022
Total		$	122,314			$	25,032			$	147,346

Liquidity Management

Since the Company is a holding company and does not conduct regular banking operations, its primary sources of liquidity are dividends from the Bank. Under the California Financial Code, payment of a dividend from the Bank to the Company is restricted to the lesser of the Bank's retained earnings or the amount of the Bank's undistributed net profits from the previous three fiscal years. The primary uses of funds for the Company are stockholder dividends, investment in the Bank and ordinary operating expenses. Management anticipates that there will be sufficient earnings at the Bank level to provide dividends to the Company to meet its funding requirements for the next twelve months.

Maintenance of adequate liquidity requires that sufficient resources always be available to meet the Company's cash flow requirements. Liquidity in a banking institution is required primarily to provide for deposit withdrawals and the credit needs of its customers and to take advantage of investment opportunities as they arise. Liquidity management involves the ability to convert assets into cash or cash equivalents without incurring significant loss, and to raise cash or maintain funds without incurring excessive costs. For this purpose, the Company maintains a portion of funds in cash and cash equivalents, salable government guaranteed loans and securities available for sale. The Company obtains funds from the repayment and maturity of loans as well as deposit inflows, investment security maturities and paydowns, Federal funds purchased, FHLB advances, and other borrowings. The Company's primary uses of funds are the origination of loans, the purchase of investment securities, withdrawals of deposits, maturity of certificate of deposits, and dividends to common stockholders. The Company's liquid assets as of March 31, 2026 were $494.8 million compared to $517.6 million as of December 31, 2025. The Company's liquidity level measured as the percentage of liquid assets to total assets was 24.8% as of March 31, 2026, compared to 25.6% as of December 31, 2025. Liquid assets decreased during the first three months of 2026, mainly due to a decrease in deposit balances. Management anticipates that cash and cash equivalents on hand and other sources of funds will provide adequate liquidity for operating, investing and financing needs and regulatory liquidity requirements for at least the next twelve months. Management monitors the Company's liquidity position daily, balancing loan funding/payments with changes in deposit activity and overnight investments.

As a secondary source of liquidity, the Company relies on advances from the FHLB to supplement the supply of lendable funds and to meet deposit withdrawal requirements. Advances from the FHLB are typically secured by a portion of the loan portfolio. The FHLB determines limitations on the amount of advances by assigning a percentage to each eligible loan category that will count towards the borrowing capacity. As of March 31, 2026, the Company's borrowing capacity from the FHLB was approximately $417.6 million and there were no outstanding advances. The Company also maintains a line of credit with two correspondent banks to purchase up to $70 million in federal funds, and approximately $28.0 million borrowing capacity through the FRB Discount Window, for which there were no advances on either borrowing source as of March 31, 2026.

Off-Balance Sheet Arrangements

During the ordinary course of business, the Company provides various forms of credit lines to meet the financing needs of customers. These commitments, which represent a credit risk to us, are not represented in any form on the balance sheets.

As of March 31, 2026 and December 31, 2025, the Company had commitments to extend credit of $202.3 million and $219.0 million, respectively, which includes obligations under letters of credit of $4.1 million and $4.1 million, respectively.

The effect on the Company's revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will be used.

Recent Regulatory Developments

CFPB Open Banking Rule

In October 2024, the Consumer Financial Protection Bureau ("CFPB") finalized a rule to implement Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank Act"), which would require certain entities, including the Company and the Bank, to, among other things, make available to a consumer, upon request, information in its control or possession concerning the consumer financial product or service that the consumer obtained from that entity. The compliance date for a depository institution data provider that holds at least $1.5 billion in total assets but less than $3 billion in total assets was set to be April 1, 2029; however, in May 2025, the CFPB filed a motion for summary judgment, in which the CFPB stated that it had concluded that the final rule exceeds the agency's statutory authority. In July 2025, the CFPB filed a motion to stay the proceedings while it conducts a new rulemaking process, which was granted by the district court. In August 2025, the CFPB issued an advanced notice of proposed rulemaking to reconsider its final rule under Section 1033 of the Dodd-Frank Act. Further, in October 2025, the court stayed the compliance dates in the final rule pending the CFPB's reconsideration rulemaking. We will continue to monitor developments for any potential impact on the Company and the Bank.